HomeMy WebLinkAbout1987-05-05; City Council; 8009-4; Adoption of a Revised Investment PolicyCITY OF CARLSBAD - AGEN
rllTG.5/5/87 ADOPTION OF A REVISED INVESTMENT
POLICY 1EPT.L
~
RECOMMENDED ACTION:
Adopt Resolution No. ?O4(& approving the City's revised Investment
Policy.
Item Explanation:
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3.
4.
Section 53646 of the Government Code requires that the Treasurer
"annually render to the legislative body of the Local Agency a
Statement of Investment Policy".
Investment Policy is a revision of the City's Investment Policy
as approved by Council on January 2, 1985, and last revised on
January 27, 1987. This revision would add the following
investments authorized by the State Legislature as of January
The attached Statement of
1987:
Mortgage Securities purchased under repurchase agreements.
Such investments cannot exceed 95% of fair market value
and 25% of eligible funds.
Medium-Term Corporate Notes of U.S. companies with a
maximum maturity of five years and rated in the top three
rating categories by two of the three largest rating
services. Purchases limited to 15% of eligible fumls.
No Load Mutual Funds investing in the securities and
obligations of the foregoing legal investments.
Purchases limited to 15% of eligible funds.
Deposits in Certificates of Deposit and Negotiable
Certificates of Deposit in state or federal credit unions.
This change will increase the flexibility of the investment
process by permitting the Treasurer to take advantage of the
returns to be realized from these legal investments.
Fiscal ImDact: ,
There is no direct fiscal impact. However, this policy plays
an important part in the safeguarding of the City's investment
portfolio.
Exhibits :
Resolution No. 9046 adopting a revised City Investment Policy.
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RESOLUTION NO. 9046
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF CARLSBAD, CALIFORNIA, REVISING THE CITY'S
INVESTMENT POLICY.
WHEREAS, the City adopted an investment policy on January 2, 1985,
and revised on January 27, 1987, as required by Section 53646 of the
Government Code, and
WHEREAS, the City Council may from time to time revise this policy
as may be necessary to provide proper guidance to City staff and the
City Treasurer, and
WHEREAS, the City Treasurer has reviewed the existing investment
policy and has recommended minor modifications which improve the City's
ability to manage inactive funds, and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Carlsbad, California, as follows:
The attached investment policy (Exhibit A) is hereby adopted and
shall become effective immediately.
PASSED, APPROVED AND'ADOPTED at a regular meeting of the City Council
of the City of Carlsbad, California, held on the 5th day of May Y
1987, by the following vote, to wit:
AYES: Council Members Lewis, Kulchin, Pettine, Mamaux and Larson
NOES: None
ABSENT: None
ATTEST :
ALETHA L. RAUTENKRANZ, City Clerk)
(SEAL)
CITY OF CARLSBAD
Revised May 5, 1987
STATEMENT OF INVESTMENT POLICY
I. INTRODUCTION
Section 53646(a) of the California Government Code requires the Treasurer
or Chief Fiscal Officer to render annually to the legislative body of the
local agency a statement of investment policy. The statement of
investment policy set forth herein is a revision of the City of Carlsbad's
Investment Policy as approved by the Carlsbad City Council on 3anuary 2,
1985, and as revised on May 5, 1987. It provides policy guidance for the
investment of all City funds not required for the immediate day-to-day
operation of the City.
11. BACKGROUND
A. OB3ECTIVE - The primary investment objective is the prudent
utilization of surplus cash and idle or inactive City funds to
generate a reasonable rate of return with an understandinq and
recognition of the associated risks involved. The City shall strive
to maintain the level of investment of all idle funds as close to one
hundred percent as possible through daily and projected cash flow
determinations and forecasts as made available by the City's Director
of Finance.
B. RESPONSIBILITY - The management of idle cash and the investment of
City funds are the responsibility of the City Treasurer as directed by the City Council.
responsibility by the Government Code of the State of California
specifying legal investments, by the prudent man rule and by the
provisions of this policy.
The Treasurer will also be guided in this
C. DELEGATION OF RESPONSIRILITY - In the absence of the City Treasurer,
the Deputy City Treasurer will assume the Treasurer's duties and
responsibilities.
D. LEGAL INVESTMENTS PERMITTED UNDER STATE LAW - The City Treasurer may
invest City funds in the following instruments as specified in the
Government Code, Section 53601 and as further limited in this policy.
6 Obligations of the U.S. Government, its agencies and
instrumentalities.
8 Registered state warrants or treasury notes or bonds of the State
of California.
8 Bonds, notes or warrants of any local agency within the State of
California.
111.
Time Certificates of Deposit and Negotiable Certificates of Deposit
offered by commercial banks, savings and loan institutions, and
state and federal credit unions. Neaotiable Certificates of
Deposit are limited to 30% of the portfolio.
Prime bankers acceptances with the followinq limitations:
a. Must be eligible for purchase by the Federal Reserve System.
b. May not exceed 270 days maturity or 25% of the City's
portfolio.
c. No more than 10% of the City's portfolio may be invested in the
bankers acceptances of any one commercial bank.
Prime Commercial Paper of the hiqhest numerical rating of Moody's
Investment Services, Inc., or Standard & Poors Corporation.
Commercial paper may not exceed 30% of the total portfolio or 180
days maturity.
Repurchase Aqreements.
Reverse Repurchase Aqreements.
Money market funds whose portfolio consists of one or more of the
foregoinq leaal investments.
Mortgaqe Securities purchased under Repurchase Agreements.
exceed 95% of fair market value and 25% of eligible funds.
May not
Medium-Term Corporate Notes of U.S. companies with a maximum
maturity of five years and rated in the top three ratinq cateqories
by two of the three largest rating services. Purchases limited to
15% of eligible funds.
No Load Mutual Funds investinq in the securities and obliqations of
the foregoing legal investments. Purchases limited to 15% of
eligible funds.
The City may also invest idle funds in the State of California Local
Agency Investment Fund in accordance with the laws and regulations
governing such investments.
INVESTMENT PHILOSOPHY
A. BASIC PREMISE - The basic premise underlying the City's investment
philosophy is to insure that sufficient funds are available to meet
the obliqations of the City when needed. The investment policy of the
City is one that seeks aggressive management of inactive cash
balances, yet emphasizes the safety, liquidity, and security of the
investment instruments.
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Rev. 5/5/87
0. ACCEPTABLE RISK - Acceptable risk, as it relates to this investment
policy, is defined as that risk which a person is permitted to take in
the investment of the City's funds under the terms and intent of the
Prudent Man Rule which states, in essence, that "in investina ...
property for the benefit of another, a trustee shall exercise the
judgment and care under the circumstances then Drevailinq, which men
of prudence, discretion and intelliaence, exercise in the management
of their own affairs.''
C. PREFERENCES - When two or more investment opportunities offer
essentially the same maturity, yield, quality and liquidity, priority will be given first to the financial institutions based in the City of
Carlsbad, and second to other financial institutions in the State of
California.
D. ETHICS - All participants in the City's investment process shall seek
to act responsibly as custodians of the public trust. The City
Treasurer shall avoid any transact ion that might impair public
confidence in the City's ability to govern effectively.
IV. POLICY STATEMENT
A. INVESTMENT LIMITS - To insure that invested funds are always available
when needed, the City Treasurer will maintain the following policy on
investment maturities:
1. At least 67% of the portfolio will be invested in instruments with
maturities of less than one year from the current date.
2. No more than 33% of the portfolio may be invested in instruments
maturing one year or more from the current date, with no more than
10% of the portfolio invested in maturities beyond ten years from
the current date.
3. The City Treasurer shall maintain an average portfolio investment
maturity of 3 years or less. If the average maturity exceeds 3
years at any time, the Treasurer shall take steps to reduce the
average maturity to three years within 90 days from such time.
Investments will be made only in readily marketable securities,
actively traded in the secondary market. No more than 10% of the
investment portfolio will be placed with any one financial
institution. If a decline in the portfolio results in mre than 10%
of the total being invested with one institution, the funds necessary
to reduce the investment to 10% will be removed upon maturity or when
no loss would occur.
€3. INVESTMENT CRITERIA - The criteria for selecting investments, by order
of priority, shall be:
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Rev. 5/5/87
1. Safety. It is the Treasurer's Drimary duty and responsibility to
protect, preserve and maintain intact cash and investments placed
in trust with the Treasurer on behalf of the citizens of the
community.
2. Liquidity. An adequate percentage of the portfolio should be
maintained in liquid short-term securities which can be converted
to cash if necessary to meet disbursement requirements.
3. Yield. Yield becomes a consideration only after the basic
requirements of safety and liauidity have been met. The City
shall attempt to obtain the hiqhest available yielding investment
provided that the criteria for safety and liariidity are first
met.
Section 53637 of the Government Code reqires money to be deposited in
any depository selected from these banks and savings and loan
associations agreeing to pay the highest rate of interest.
The City seeks to attain market rates of return on its investments
consistent with constraints imposed by safety, cash flow
considerations, and state laws that restrict the placement of public
funds .
U.S. Government and Aqency obligations are the highest quality
investments available to the City in terms of investment safety and
liquidity.
C. INSURED INVESTMENTS - Investments in commercial bank and savings and
loan insitution time certificates of deposit shall be fully insured up
to $100,000 by the Federal Deposit Insurance Corporation and the
Federal Savings PC Loan Insurance Corporation respectively.
D. COLLATERALIZATION - Investments in certificates of deposit in excess of $100,000 shall be properly collateralized.
53649 specifies that the City Treasurer is responsible for entering
into deposit contracts with each depository.
Government Code requires that the depository pledge securities with a
market value of at least 10% in excess of the City's deposit as
collateral in government securities and fifty percent in excess of the
deposit as collateral in mortgage pools.
Government Code Section
Section 53652 of the
E. ACTIVE AND PASSIVE TRADING - Active and passive trading of securities
is authorized. Active trading is the buying and selling of securities
in the market in an effort to take advantage of short term profits and
advantageous arbitrage situations. Passive trading is the purchase of
securities and their retention until they mature. Active trading can
result in occasional loss of principal and should be engaged in only
when there appears to be a clear advantage at the outset.
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Rev. 5 151 87
F. SELECTION OF FINANCIAL INSTITUTIONS - Investments shall be purchased
only through well established, financially sound institutions. All
securities held for safe keepinq shall be registered in the City's
name. The City shall maintain a list of financial institutions
approved for investment. Commercial banks and savinqs and loan
associations must be State or Federally chartered and must maintain a
minimum net worth to asset ratio of three percent. Total requlatorv
net worth divided by total assets equals the net worth to asset ratio.
They must also have a positive net earnings for the last reportinq
period. Commercial banks must have on file in the Treasurer's Office
a current FDIC call report and savinqs and loans must have on file in
the Treasurer's Office the latest monthly FYLRR report.
firms must be members in good standinq of a national securities
exchanae.
Rrokeraqe
G. SHORT-TERM BORROWING - The City is permitted by law to borrow money to
meet current short-term cash flow needs during periods when projected
cash disbursements exceed projected cash receipts through the use of
tax exempt instruments such as revenue anticipation notes and tax
anticipation notes. The amount which can be borrowed equals the total
of the cash deficit plus projected cash disbursements for one month.
These funds may be borrowed at the beginning of the fiscal year and
repaid at the end of the year.
ti. LINE OF CREDIT - The effort to maintain idle funds 100% invested at
all times can result in the City's cash accounts being temporarily
overdrawn from time to time. To guard aqainst this, the City is
authorized to maintain a line of credit with the City's bank in a
sufficient amount to cover sums temporarily overdrawn.
V. REPORTING AND REVIEW
A. REPORTS - The Treasurer shall annually render to the City Council a
Statement of Investment Policy. The Treasurer shall also submit to
the City Council a monthly report showing type of investment,
institution, maturity date, amount of deposit, current market value of
all securities with a maturity of more than twelve months, and rate of
interest. This report will show its relationship to the statement of
investment policy.
B. REVIEW - This policy and the strategy for and conduct of the
investment of City funds will be reviewed by an investment review
committee as set forth below and by the City's auditors in the conduct
of their annual audit of the City.
C. INVESTMENT REVIEW COMMITTEE - An Investment Review Committee is hereby
established to conduct periodic reviews of the City's investment
portfolio, the strateqy being utilized for the investment of City
funds, and the City's investment policy.
composed of the City Treasurer, the Deputy City Treasurer and the City
Finance Director as voting members. Additionally, a financial
This Committee will he
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Rev. 5/5/37
advisor, provided by a recognized auditinq firm may be included as an
advisor without a vote. The Committee will be convened periodically
as necessary or desireable but not less often than quarterly.
Rev. 5/5/87